Factors affecting valuation of property in India

Recent real estate in India proved beyond doubt that property valuations have taken a turn for the better.

Correct insights in regards to the right time for purchase of property, price escalations, recessions in the real estate market and other indicators, help in making valuable purchase decisions. So, what are these factors which drive real estate prices in the subcontinent?

Location 

Buildings, real estate and properties, located in commercial and market areas, hold higher value than their counterparts in the residential areas. It is common to find brokers quoting a higher price for buildings in well developed and approved colonies and areas as against those in the lesser developed and upcoming areas. Similarly buildings which are constructed on freehold land tend to command a higher valuation than those on leasehold plots.

Infrastructure:

Valuation of property is clearly based on the availability of necessities and facilities connected with comfortable housing.

Infrastructural development is one of the most important factors which influence real estate prices in India. The presence of roads, airports, flyovers, malls and bus terminals and other facilities in the vicinity of the property, helps in value escalation of the same.

It is a known fact that connectivity is one of the most important requirements for investors looking towards purchasing land or property. This leads to the concept which explains a rise in the valuation of property which is well connected to entertainment hubs, medical facilities, educational institutions, retail markets and business centers, along with other day to day facilities.

Commercial market 

Places such as Noida, Gurgaon, Pune, Hyderabad, Navi Mumbai and Andheri-Borivili in Mumbai, are striking examples of commercial development which have affected the valuation of property in these areas.

The development of malls, IT offices and Special Economic Zones near residential areas help in cutting down the time and energy wasted in commuting to workplaces and increase the price of real estate in the area.

Disposable Income

Properties which are located in agricultural areas or those dominated by manufacturing units attract a lower price than those situated near the IT hubs. The valuation of property is in direct proportion to the quantum of disposable income in the hands of the purchaser or the majority of population in that area.

Availability of land

In places where there is ample land available for residential purposes or development of real estate, the graph reflecting the valuation of property shows a slower rise than in areas where land is comparatively scarce.

Demand and Supply

Demand for real estate in a particular area is inversely proportional to its supply. As the supply or availability of real estate decreases, the valuation of property increases. Changes in population are the key drivers for demand. Along with an increase in the number of people inhabiting a particular area, the popularity of a particular locality in terms of people wanting to be a part of the locality also increases its price.

Affordability

Affordability refers to the cost incurred by the owner in the process of enjoying or retaining a property. In layman’s term, it is the term which establishes a relationship between interest rates, property prices and wages. If any of above three variables reach their maximum level in a particular area, then the inhabitants start looking towards a better lifestyle elsewhere.

Structure

The valuation of property is dependent on the specifications of materials used, layout, design, durability and life cycle of the building. The quality and cost of materials during construction, size, current rates of labor, frontage and other physical attributes such as roof covering, height of the building, type of foundation , waterproofing and plinth level, also affect the price of a particular property.

Customization

The cost of real estate becomes higher in the event of builders undertaking customization of residential space on the lines of the purchaser’s requirements. For example, some investors may want landscaped terraces or verandahs connected with their apartments, upgraded kitchens, specifically designed internal stairways in duplex apartments, higher quality paint and flooring, or other user defined changes. This leads to an escalation in the ultimate price charged to the buyer.

Before making their real estate purchase decisions, investors should conduct an analysis of these drivers to get a fair valuation of the property that interests them. Careful investigation and homework can lead to better returns, easy liquidity and more lucrative investments.

Bangalore IT pros finding it difficult to service home loans

BANGALORE: Economic slowdown has cast a shadow on Bangalore's housing market, with the rising cost of living and poor salary increments forcing an increasing number of IT professionals in the city to put their upscale homes on sale. 

Gen Y techies, who had invested in apartments, row houses and bungalows in Bangalore — India's IT capital, some 15 years ago, are now finding it difficult to service their expensive home loans or even maintain these houses amid falling rental yields. Resale inventory in this housing segment has grown 30-35% over the last six months, according to property portal CommonFloor.com.

Six of every 10 such properties are owned by IT executives, up from around four about two years ago, it said. "The booming real estate market was a major incentive for techies, but now that salaries are not going any higher, inflation is getting the better of these people, they are feeling the heat and the burden of hefty EMIs," said Mohandas Pai, the former CFO and head of HR at Infosys, who has seen the IT industry grow in Bangalore over the last 20 years from close quarters.

Resale inventory in this housing segment has grown 30-35% over the last six months, according to property portal CommonFloor.com. "Now they are eager to get rid of any excess property they possess while they can still getting a good deal," added Pai, who is chairman of Manipal Global Education. Since 2001, the city has seen an addition of 350,000 apartments, about 8% of which are now up for sale. During this period, about 45,000 villas and penthouses were added to the city and 8% of these are now in the resale market.

"These properties would fetch a huge premium now, running into a crore or more. Why not sell them off," said Kalpana Murthy, associate director — residential services at Cushman & Wakefield, a property consultant.

Bangalore's realty sector had witnessed steady investment by salaried IT professionals till a few years ago, with well-paying jobs making even a second or third home affordable for some. Around this time, real estate prices were low and the return expectation high, which helped push up rentals. That demand, however, began to peter off as recession set in, hitting company bottom lines and employees' salaries. Salary increments in the IT sector this year have been in the 6-8% range, compared with a minimum of 15% between 2007 and 2010. Adding to the gloom is IT industry body Nasscom's forecast that the domestic IT sector could generate 50,000 less jobs this year, down 17% compared with last year.

"Looking at the appraisals for the year, I stalled my shifting plans, which would only increase my expenses," said 35-year-old Ankit Jain. The Accenture employee recently sold his 1,500 sq ft, three-bedroom apartment on Sarjapur Road, which he had bought in 2009, for twice the purchase price. But not everyone is as lucky. With several such professionals in the market to sell, and builders launching new projects every month, Bangalore is facing an oversupply of sorts while demand has been dropping steadily. "The market is certainly slow and sellers are finding it difficult to find buyers.

The slowing economy and rising inflation is making matters worse," said Srinivas Reddy NS, senior manger — research at Jones Lang LaSalle, another property consultant. Home sales across the country have been slipping over the last few quarters. According to property research firm Liases Foras, new home sales in Bangalore in the June quarter were down 23% from a year ago. Another techie, Shameer VK, 35, who works with Cisco and lives in a 2,000 sq ft apartment in Marathalli, said his home is "too lavish", given the current economic scenario.

"I bought my apartment for close to Rs 50 lakh in 2008, and I pay an EMI of Rs 39,500. A similar house in the same project now goes for Rs1.3 crore," Shameer said, adding that if he is able to find a buyer for his flat, the money will help him pay off his debt and also buy a smaller property in the neighbourhood. The housing resale market in Bangalore is dominated by peripheral localities in the east and south of the city, which are close to major IT hubs.

According to Sumit Jain, chief executive of CommonFloor.com on Sarjapur Road, which is equidistant from Whitefield and Electronic City, more than 11% of all properties are available for resale. At Whitefield and Bannerghatta, it is 10.9% and 6.9%, respectively. Marathalli has 4.9% while JP Nagar has 4.6%. With the rupee having fallen sharply against the dollar, experts say it could be an opportunity for non-resident Indians who are repatriating dollars.

[Source : http://timesofindia.indiatimes.com/tech/tech-news/software-services/Bangalore-IT-pros-finding-it-difficult-to-service-home-loans/articleshow/22322735.cms ]

India realty space to see $4—5 bn foreign inflows in 2 yrs

India’s realty sector is set for robust inflows of USD 4—5 billion from overseas investors in the next couple of years, with Bangalore, Delhi and Mumbai emerging as the favourites, global real estate consultancy giant Jones Lang LaSalle has said in Devos.

“The early foreign investors in India, who came in around 2006—07, did not have very good experience, partly because of their inexperience in doing business in India and partly because of global financial crisis,” JLL Asia Pacific CEO Alastair Hughes said here.

“However, foreign investors are now looking with a renewed interest at India, given its still robust economic growth rate as that bodes well for good returns to their investments,” Hughes said.

Hughes, who was here to participate in the World Economic Forum Annual Meeting, said foreign fund inflows were expected to pick up in the Indian realty sector going forward.


He added: “They (investors) are now looking much more closely at India to put in their funds into Indian real estate sector. They had come in between 2006—2007 and first half of 2008, but they completely went away in 2009 and have been mostly away since then.


“The overseas investors are now looking to come back and what they are looking for right now is good partners in India, because it is a difficult place to do real estate business because of various reasons.”


Right now, many Indian developers and fund managers are seeking to get international money and that is much more likely to come in, Hughes said, adding that there is more international money today waiting to be invested in India than any of the last five years.


Overseas investors have invested USD 14 billion into the Indian real estate sector over the period from 2006 to 2012.


In the last two years, foreign investment into Indian real estate has been around USD 1.2 billion per annum.


Around half of all transactions were invested in residential property, a quarter in the offices sector and the remaining quarter was split among the other sectors. 

Regionally, half these investment come from US with rest coming from the Middle East, Singapore, the UK, Hong Kong and Germany, Hughes said.

Terming the next two years as much more promising, Hughes said that 2013 and 2014 will have a total of USD 4—5 billion come into the sector, mainly to buy income yielding SEZ assets at a capitalisation rate of 10.75 per cent.


“We expect interest from global and US investors to maintain. Favourite location foreigners will be Bangalore, New Delhi and Mumbai,” he added. (Source PTI).

Developer Needs 34 Clearances to Complete Project

High stamp duties and difficulties in land acquisition are some other issues, which need to be addressed.


Delays in project clearances have helped property prices to increase by 40 percent in India. Usually, to start a new project, 34 procedures are required to obtain clearance which takes an average time of six months.

According to the Economic Survey 2013, “India’s housing and real estate sector faces many challenges. There are 34 procedures and the average time taken is 196 days, which increases the sale value by 40 per cent,” according to the Economic Survey for 2012-13.

Quoting the latest World Bank report, the survey stated that in terms of housing, India is one among the top countries but when it comes to project clearances, it ranks 182nd.

Rapid increase in land prices, absence of a long-term funding and lending market at fixed rates, limited developer finance, the Urban Land Ceiling Regulations Act (ULCRA) continuing in some states, existing lower floor area ratio in cities, high stamp duties and difficulties in land acquisition are some other issues, which need to be addressed, said the
survey.

In India’s total GDP, the real estate sector and the housing sector contribute a share of 5.9 percent and have seen growth of 7.2 percent in the year 2011-12.

The survey also said that property prices have become reasonable during the current financial year.
“As per the National Housing Bank RESIDEX index for the quarter July-September 2012 compared to April-June 2012 (covering 20 cities, with 2007 as base year), there is a general decline in prices of residential properties in some smaller towns, while the increase in other cities is mostly marginal,” the survey added, reports . With the increase in urbanization, the demands for housing in cities have been increasing over the years.